In 2009, when Chris Kerrigan helped launch Brightspot, Jakarta’s first pop-up market (short-term retail space), it was meant to inject some spice into the city’s growing retail sector. Drawing on a concept that would help support up-and-coming Indonesian designers, he and his partners aimed to create a temporary shopping experience that might appeal to young consumers with rapidly rising disposable incomes. They were hoping for a party that would generate some sales. What they got was a sold-out show and demand that seemed unquenchable. “We knew immediately we were on to something,” Kerrigan recalls.

Some 5,000 people attended that four-day event in 2009. Three years later, Brightspot drew 55,000 buyers, and Kerrigan and his team have expanded their operation to include a “curated” department store — or a collection of Indonesian designers grouped under a single shop — and two cafés.

In many ways, their story is the story of Indonesia, Southeast Asia’s biggest economy and one of Asia’s fastest growing. In 2011, the economy grew by 6.5%, and economists predict it will top 6% again by year’s end. That the country has remained mostly sheltered from the economic crises impacting the United States and Europe is mainly because of the two things driving its economy: consumption and commodities.

Domestic consumption accounts for almost two-thirds of Indonesia’s gross domestic product. Sales of lucrative commodities — such as coal, palm oil and gold — make up much of the remaining third. Rising prices for the natural resources that Indonesia has in abundance have helped push millions of people into the middle class, increasing their purchasing power and driving a boom in sales of everything from cars to cosmetics to air travel. “Indonesia’s consumer economy is actually in better shape than that of China or India,” said Debnath Guharoy, Asia director for Roy Morgan Research, an Australia-based market research company.

Money from the export of metals and minerals, particularly the thermal coal needed to feed China’s 1.3 billion people, is what feeds the country’s growth engine, he continued, while the consumer economy is what keeps the engine turning. “That motor will keep ticking over — and it will create wealth.”

Growing Middle Class

Between 2003 and 2010, roughly 50 million people entered the middle-income bracket, defined by the World Bank as those who spend between $2 and $20 a day. In 2011, Indonesia’s GDP per capita topped $3,600, exceeding that of India, Asia’s second largest consumer market after China.

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Brands are now betting on the growth of those buyers to support sales of cappuccinos, cosmetics and home decorations. Established names like McDonald’s and Dunkin Donuts have all registered strong profits over the past year, while shares in some retailers, such as Mitra Adiperkasa — which holds franchise rights to Burger King, Starbucks and department store Debenhams — have climbed more than 20%. Major international retailers are seeing that growth and are scrambling to get a foothold. Swedish retailer Ikea, for instance, plans to open its first Indonesian outlet in 2014.

Some of the strongest growth over the past year has come from the convenience store segment, particularly Tokyo-based 7-Eleven, which has more than 60 outlets in Jakarta and is aggressively expanding. Most of its clientele is under 30, and to reach them the brand has altered its marketing approach. It serves affordable ready-to-eat food and drinks for people on the go but also offers outdoor seating and Internet connectivity — an appeal to a culture partly defined by its love for social networking.

Outside Indonesia’s major cities and among the sizeable low-end of the middle-income segment, purchasing decisions focus more on big-ticket items and daily needs. “If you own a television set, a refrigerator and a motorcycle or a car, you qualify in my mind as a middle-class home,” notes Guharoy, who prefers to use those three pegs to define the middle class in emerging economies. Gauged in that way, Indonesia’s middle class has grown from 28% of households to 45% since 2007. It is this segment that is driving sales of noodles, juices and household items, boosting profits at companies such as Unilever, Kraft and Nestle.

Given easier access to credit, the middle class is also propping up sales of cars and motorbikes, many of which now offer cheap new models to appeal to low-income earners. Car sales in Indonesia hit nearly 900,000 units in 2011, beating out Thailand to become the No. 1 car market in Southeast Asia, with sales projected to reach one million units by the end of this year. “Production and sales in Asia are double what they are in the U.S. and Europe,” says Michael Dunne, a leading expert on Asian car markets, adding that Indonesia could be the next China if it provides the incentives needed to attract outside investment. “The trick for Indonesia is to convince foreign investors that this is a good place to make money.”

Booming Auto Sales

Signs are pointing in the right direction. Carmakers including Nissan, Toyota and General Motors have already pledged up to $2 billion in the coming years to expand their manufacturing operations in the country, and they are not just coming here to produce cars for export. “People are looking at the domestic market,” notes Jongkie Sugiarto, the co-chairman of the Association of Indonesia Automotive Industries and president director of Hyundai Motor Indonesia. Today the hottest auto market is for Toyota Avanza minivans that consumers are snapping up for around $15,000. In five years, they will be spending $20,000.

The biggest concern among investors is Indonesia’s gross lack of infrastructure. While sales of cars and motorbikes have skyrocketed, road networks have barely expanded. A new land use law passed early this year will make it easier to procure land for the development of toll roads, and other much-needed infrastructure is still awaiting implementing regulation.

In addition, President Susilo Bambang Yudhoyono has set out an ambitious $400 billion 15-year development plan, nearly a quarter of which will go toward projects such as highways, ports and power plants. But a decision by Parliament in April to continue supporting fuel subsidies constrains the government’s ability to redirect spending toward vital infrastructure and improve the country’s business climate, which still ranks low on global indexes.

Airport expansion has been a top priority due in no small part to blistering growth in the airline industry. Last year, more than 68 million people took to the skies in Indonesia, growth of 15% from the year before. Industry analysts predict growth will continue at around 20% in the coming years. “Indonesia has huge potential,” says Brendan Sobie, a senior analyst for Southeast Asia at the Center for Asia Pacific Aviation. “It’s become one of the hottest markets in Asia.”

Dozens of new airlines have been created since a 2004 regulation made it easier for new players to enter the market. In recent years, plane manufacturers looking to take advantage of strong growth have feted Indonesia at international air shows. Boeing and Airbus are competing for orders and offering training and maintenance support to major buyers Garuda and Lion Air, which recently signed a record $22 billion deal for 230 Boeing 737s.

Air travel is a natural fit for a country comprised of more than 17,500 islands and constrained by a lack of road and rail infrastructure, says Sobie, who notes that the industry has boomed thanks to an influx of low-cost carriers. But some analysts worry that the number of new airlines makes it harder to ensure safety monitoring and strains an industry with a reputation for poor safety standards. New technology would help, they say, but this, too, is an area where Indonesia is lagging.

Facebook Nation

“Indonesia has adapted very quickly to cheap access to technology and is a huge Facebook and Twitter nation,” says Roy Morgan’s Guharoy, referring to the large population of Indonesians who use social networks. That is mainly because of easy access to affordable smart phones and pay-per-use data plans.

But when it comes to sleeker, more modern systems — ranging from the latest mass rapid transit to updated air traffic control to mobile banking — Indonesia is still far behind neighboring Thailand, Malaysia and Singapore. It may not be too far behind China, however, in terms of rapid growth, and Indonesia’s central bank and Ministry of Finance have kept a close eye on consumption patterns to keep the market from overheating.

Bank Indonesia has done well to keep inflation fairly stable while also lowering interest rates to support consumer spending. Consumer goods have seen the impact, but so, too, has the property sector. Sales of homes and condominiums grew by 130% last year, according to property firm Jones Lang LaSalle. Prices have been rising in parallel, with condominiums in the middle-class market 60% more expensive than they were in 2007.

Such growth has fed fears of potential pricing bubbles, pushing the central bank to launch new policy measures that will require higher down payments for automotive and mortgage loans. Industry players say the move is pre-emptive and will only hurt growth. Guharoy is more bullish. “The consumer economy has real legs and very few threats,” he notes, highlighting Indonesia’s consumer-driven economy as one of the strongest tools in its growth arsenal. And that means Indonesia — a basket case economy just 15 years ago — may maintain its sweet spot far into the future.